Fitch Rates Metro Washington Airports Authority, DC $425MM Bonds 'AA-'

Business Wire, March 15, 2005

NEW YORK -- Fitch Ratings assigns an underlying 'AA-' rating to Metropolitan Washington Airport Authority (MWAA, or authority), D.C. as follows:

--Approximately $320 million of airport system revenue bonds, series 2005A (alternative minimum tax; AMT);

--$75 million of airport system revenue bonds, series 2005B (non-AMT);

--$30 million of taxable airport system revenue bonds, series 2005C.

The bonds are expected to be insured by an insurer whose insurer financial strength is rated 'AAA' by Fitch Ratings. The Rating Outlook is Stable.

The series 2005A-C bonds will price via negotiated sale on or about March 30. Bear Stearns & Co., Inc. will act as the book-running senior manager on the series 2005A and B bonds while Morgan Keegan & Co., Inc. will act as the book-running senior manager on the series 2005C bonds. The series 2005A-C bonds are being issued on parity with approximately $2.6 billion of outstanding airport system revenue bonds, whose unenhanced ratings are also affirmed at 'AA-'. Net revenues generated by Dulles International Airport (IAD) and Washington Reagan National Airport (DCA) secure the bonds.

Proceeds of the series 2005A bonds will be used, together with other authority funds, to refund outstanding series Two CP notes ($141 million) and finance certain capital projects contained within MWAA's 2001-20011 $3.9 billion Capital Construction Program (CCP). Proceeds of the taxable series 2005C bonds will also provide CCP funding. The series 2005B bonds will be issued to refund outstanding maturities of various airport system revenue bond issues only as market conditions warrant and authority refunding criteria are met.

The authority's 'AA-' rating reflects the strong competitive position and complementary service offerings of both IAD and DCA, historically sound financial performance, conservative forecasting assumptions with respect to both passenger levels and revenues, and an experienced management team that oversees the large, multiphased CCP. The rating also reflects the current Chapter 11 bankruptcy status of UAL Corp., parent of United Airlines and US Airways. United is the largest carrier at IAD, with mainline and regional operations accounting for approximately 56% of total enplanements during 2004. At DCA, U.S. Airways and its regional partners account for the largest share of traffic at 37%.

While both airlines appear committed to maintaining sizable operations within the D.C. area, Fitch believes that risks do still exist as both carriers complete their court supervised reorganization. Moreover, the cessation of service by either airline would likely cause a temporary gap in service to both airports. US Airways, which currently owes MWAA $1.1 million in prepetition claims, has not yet confirmed its airline agreement, though expects to do so shortly. United affirmed its airline agreement during 2004 and has agreed to pay the $4.5 million in debt owed to the authority upon its emergence from bankruptcy.

Offsetting the moderate airline concentration risk is the strong origination and destination (O&D) profile of traffic at both IAD (70%) and DCA (87%), favorable demographic trends within the airport's affluent service area, and the competitive cost and debt profile of both facilities. Air carriers recognized these strengths during 2004 and expanded operations at both airports. At IAD, enplanements increased by a noteworthy 35%, to 11.3 million, reflecting a surge in demand stimulated by low fares of Independence Air, formerly Atlantic Coast Airlines, once United's main regional partner at Dulles, and the retaliatory pricing and service tactics of the major airlines. As MWAA management recognizes annual enplanement growth at this level is neither realistic nor sustainable, capital planning at IAD contemplates only modest (4%) traffic growth. DCA's traffic rebounded by 12% to approximately 8 million enplanements during 2004, a level exceeding the peak recorded prior to Sept. 11, 2001. However, future traffic growth is expected to be more modest at DCA (growing generally between 2%-3%), reflecting its status as an FAA slot-controlled facility.

MWAA's experienced management team successfully meets the challenges of implementing a large capital program while also consistently generating healthy financial results. During fiscal 2004, the authority generated an operating ratio of 43%, which is consistent with authority performance prior to Sept. 11, 2001. Net revenues totaled approximately $235 million providing healthy 1.7 times (x) debt service coverage and a sizable cushion for bondholders above the 1.25x rate covenant. As of June 30, 2004, unrestricted liquidity totaled approximately $240 million, equaling a healthy 9% of pro forma debt. Management maintains strong oversight on accounts receivable from both bankrupt and nonbankrupt airlines serving DCA and IAD.

Offsetting credit risks include MWAA's increased debt burden, as it expects to sell roughly $1.2 million in additional bonds from 2005-2011, and rising costs per enplanement (CPE) at both airports. CPE levels at IAD will approach $22 by 2009, up considerably from the $12.34 reported during fiscal 2004. Likewise at DCA, CPEs will rise to above $14 from the currently competitive $11.84. Under a stress case where IAD would lose its hub status and experience a 75% decline in connecting enplanements and where DCA would experience no traffic growth, CPE would increase to approximately $37 at IAD and $16 at DCA. Though well above historical norms, Fitch notes the assumptions' underpinning the stress case are extremely conservative and recognizes the modular nature of the CCP allows for cancellation or postponement of projects if needed.